Could an iTunes subscription service save the record biz?

According to a report in Billboard, digital music sales are beginning to stagnate, too. But what if Apple was able to collect $15 a month from tens of millions of iPod Touch and iPhone users?

The record industry better hope that Wednesday's Apple announcement is big news-- pre-cut ringtones, a new digital album format , perhaps the addition of recordings from some obscure 1960s rock band who were apparently pretty good. According to an analysis in today's Billboard Online, the usual summer slump in digital download sales is more pronounced this year, and ringtone sales continue their steep decline. For an industry that's counting on digital to make up for declines in CD sales, that's very unwelcome news.

What if Apple brings Genius to the cloud? It might prove that subscription services have a chance after all.

The author, Glenn Peoples, suggests that ringtones and a new album format on iTunes could help, but there's another possibility that I haven't seen mentioned elsewhere: what if Apple takes the plunge into subscription-based music? So far, subscriptions haven't been a successful business model, but I'm not convinced it's because the idea is flawed. The problem is that no subscription service has been available for the iPod or iPhone. ( Spotify for iTunes is too new, and not available in the U.S., so I don't count it yet.) Look at Pandora for iPhone : it doesn't even let you choose individual songs, but once users realize that they have on-demand access to an infinite library of music, they can't seem to stop raving about it.

Imagine if Apple combined a new subscription service with the iTunes Genius function, which is conceptually similar to Pandora but currently limited to your existing music collection. (It also recommends songs in the iTunes store, but you have to buy them individually, which kind of ruins the delightful-surprise factor.) How much would you pay for that? Now multiply that by some percentage--20 percent might be reasonable--of present and future iPhone and iPod Touch users, and suddenly you're talking about meaningful annual revenue. I know that Steve Jobs has insisted that customers want to own rather than rent music, but remember that he once scorned the idea of a video iPod as well.

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About the author

    Matt Rosoff is an analyst with Directions on Microsoft, where he covers Microsoft's consumer products and corporate news. He's written about the technology industry since 1995, and reviewed the first Rio MP3 player for CNET.com in 1998. He is a member of the CNET Blog Network. Disclosure. You can follow Matt on Twitter @mattrosoff.

     

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